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Understanding Refinance
Refinance your home loan. This is where you pay off your existing mortgage and replace it with a new mortgage, either with the lender you have or a different lender. The main aim is typically to improve the terms of your loan; either a lower interest rate, smaller repayments or access to extra features that your current loan may not have.
Refinancing is a common financial strategy in Australia, due to fluctuating interest rates, competitive lender offers, cash back incentives and changing borrower needs. But it’s not just about transferring loans, it’s a financial decision that should be based on long term savings, up-front costs and your overall financial goals.
What is home loan refinance?
Refinancing means you pay off your existing mortgage and replace it with a new loan agreement. This process resets your lending arrangement, and your repayment structure, interest rate and loan features may change.
Two main types of refinancing are:
Refinance Savings Calculator
See How Much You Could Save by Refinancing Your Home Loan
A refinance savings calculator helps you compare your current home loan with a new loan option to estimate potential savings on interest and repayments. FS Loan helps you understand your refinance benefits so you can make a more informed financial decision.
Internal Refinancing (Same Lender)
You renegotiate your loan terms with your bank. This is usually faster and cheaper, but the amount you can save may be limited.
Refinancing (Another Lender) (External)
You change lenders to get better rates, features or incentives. This might include discharge fees, application fees and valuation costs, but often results in greater long-term savings.
Refinancing is a consideration of short-term costs and long-term financial benefits.
How a Refinance Calculator Can Help You
A refinance calculator is intended to give you an idea of how much money you could save (or possibly lose) when you refinance your home loan. It compares your current loan to a new loan structure and shows the financial impact over time.
Calculating complex loans yourself can be time-consuming, but the tool clearly breaks down how your repayments, and your savings on interest and switching costs, will change.
The calculator takes into account your existing loan and your new loan offer to provide you with precise results.
Inputs Required for an Accurate Refinance Estimate
Current Loan Details
These inputs help establish your existing financial position:
| Input | Purpose |
|---|---|
| Current loan balance | Remaining amount you owe |
| Current interest rate | Your existing lender’s rate |
| Remaining loan term | Time left to repay the loan |
| Repayment frequency | Monthly, fortnightly, or weekly payments |
| Account-keeping fee | Ongoing lender charges |
| Exit/discharge fees | Costs to close the current loan |
New Loan Details
These inputs help estimate your potential savings:
| Input | Purpose |
|---|---|
| Introductory rate | Initial discounted interest rate |
| Introductory period | Duration of the special rate |
| Revert rate | Rate after the discount ends |
| Switching fees | Upfront refinance costs |
| Ongoing fees | Monthly or annual charges |
What the Refinance Calculator Shows
A proper refinance comparison typically presents three financial scenarios:
Scenario 1: Staying With Your Current Loan
This shows what you will continue paying if you do not refinance. It includes your remaining interest obligations and current repayment structure.
Scenario 2: Switching Loans (Minimum Repayments)
This scenario shows how your repayments change if you refinance and only pay the minimum required amount on the new loan. It helps you understand immediate cash flow changes.
Scenario 3: Switching and Maintaining Old Repayment Levels
This is often the most powerful scenario. It shows how much faster you can repay your loan if you keep paying your old repayment amount after refinancing to a lower rate. This can significantly reduce total interest paid.
Example Refinance Comparison Breakdown
| Category | Current Loan | New Loan Scenario |
|---|---|---|
| Loan Balance | $450,000 | $450,000 |
| Interest Rate | 6.5% | 5.5% |
| Monthly Repayment | $2,850 | $2,550 |
| Monthly Savings | – | $300 |
| Estimated Fees | – | $2,000 |
| Long-Term Savings | – | Significant over 20–30 years |
Even a 1% reduction in interest rate can save tens of thousands of dollars over the life of a loan, depending on the balance and term.
Understanding Scenarios
Refinancing your mortgage. This is where you pay off your existing mortgage and refinance with a new mortgage, with your current lender or a different lender. The main aim is usually to improve the terms of your loan; for example, a lower interest rate, smaller payments, or the addition of features that might not be available with your current loan.
“Refinancing is a popular financial move in Australia with interest rates changing, competitive lender offers, cash back incentives and changing borrower needs. But it’s not just about moving loans, it’s a financial decision that should be made on long term savings, up-front costs and your overall financial objectives.
What does home loan refinance mean?
Refinancing is the process where you pay off your existing mortgage and replace it with a new loan agreement. This process resets your lending arrangement and your repayment structure, interest rate and loan features may change.
There are two main types of refinancing:
Internal refinancing (same bank)
You re-work out the terms of your bank loan. This is typically faster and less expensive, but you might not be able to save much.
Refinance (Other Lender) (External)
Change lenders for better rates, features or incentives. This can include discharge fees, application fees and valuation costs but often results in greater savings in the long term.
Refinancing is all about the short term costs versus long term financial benefits.
Advantages of a Refinance Calculator
A refinance calculator will give you an idea of how much money you could save (or potentially lose) when refinancing your home loan. It compares your current loan with a new loan structure and shows the financial impact over time.
Doing complex loans yourself can take time, but the tool clearly explains how your repayments and savings on interest and switching costs will change.
The calculator considers your existing loan and your new loan offer to give you accurate results.
Disadvantages of Refinancing
| Factor | Impact |
|---|---|
| Exit and setup fees | Can reduce savings in short term |
| Loan application process | Requires documentation and approval |
| Credit inquiries | May temporarily affect credit score |
| LMI reset risk | May apply again if equity is low |
| Reduced flexibility | Some new loans may have stricter terms |
A refinance should only be considered if the overall financial benefit is clear after accounting for all costs.
Key Costs to Be Aware of When Refinancing
Many borrowers only consider the interest savings, but there are hidden or upfront costs that you need to consider in your decision.
- Fees for discharge from your current lender
- Fees for new loan applications
- Real estate appraisal fees
- Government or legal charges (in some cases)
- Break costs (if you want to exit fixed loans early)
Depending on your lender and the type of loan, these fees can range from a couple of hundred to a couple of thousand dollars.
When Refinancing Makes the Most Sense
Refinancing usually makes more sense when:
- Your existing interest rate is higher than market rates
- Your property value has increased substantially
- You have built up enough equity (ideally 20% or more)
- You want to lower your repayments or loan term
- You want more loan features/flexibility
It may not be suitable if your loan is still young, exit costs are high or your financial situation has changed negatively.
Watch Out for Break Costs
If you’re currently on a fixed-rate loan, refinancing before your fixed term ends may trigger a break cost, sometimes thousands of dollars.
Break costs are calculated by your lender based on the difference between your fixed rate and current wholesale rates. Always request a break cost estimate from your lender before deciding to refinance.
Your potential refinance saving should comfortably outweigh any break costs before switching makes financial sense.
Conclusion
A refinance calculator is a helpful tool to see if switching up your home loan will actually save you money. It allows you to compare current repayments to potential new loan structures and highlights both savings and hidden costs.
But interest rates alone should never be the reason to refinance. A full analysis including fees, loan features and long-term impact is essential in making the right decision. It’s important to take the time to carefully compare scenarios to make sure refinancing really improves your financial position, rather than simply changing your loan on paper.
